6 big Canada Pension Plan changes coming in 2012


mentalfloss
#1
6 big Canada Pension Plan changes coming in 2012
New rules could affect retirement planning

Last week in a speech in Davos, Switzerland, Prime Minister Stephen Harper lit a political powder keg when he hinted at possible changes to Old Age Security benefits. He was quick to point out that the Canada Pension Plan is "fully funded, actuarially sound and does not need to be changed," but a close look at the plan shows some alterations to the CPP are already under way.

The rules governing the Canada Pension Plan are updated regularly, but most years the changes are limited to simple increases to benefit payments and premiums. Not this year.

Ottawa is bringing in a raft of new or tweaked policies to reflect that retirement these days is more of a gradual transition for many people rather than a single event. Many of these changes either begin in 2012 or are entering the next phase-in period, and they'll have a direct impact on the retirement plans of Canadians.

In some cases, the changes are big enough that people nearing retirement may want to have a chat with a financial adviser before deciding exactly when to apply for a CPP retirement pension.


Early CPP, lower benefits

The first change involves payment rates.

People can choose to take a CPP retirement pension as early as age 60. But there's a catch – a 0.5 per cent reduction in the pension payout for each month before age 65 that someone begins receiving it. That translates into a retirement benefit that's 30 per cent less at age 60 that it would be if you waited until 65.

Starting in 2012, Ottawa is beginning to phase in a bigger reduction to get that early access.
For 2012, the penalty rises to 0.52 per cent per month – or a 31.2 per cent reduction for someone who starts receiving their retirement pension at age 60.

The early-bird reduction will continue to rise until 2016, when it hits 0.6 per cent per month, or a maximum 36 per cent reduction for those who start receiving CPP payments at age 60 rather than waiting until they reach 65.


Later CPP, bigger benefits

Similarly, those who wait until after the age of 65 to start collection CPP will get a bigger increase in their retirement benefit.

Before 2011, the rules stated that the CPP retirement benefit was boosted by 0.5 per cent for each month after age 65 that an individual put off receiving it. So someone who waited until age 70 would enjoy a 30 per cent boost in their payments.

But starting in 2011, the government began to phase in a gradual increase to that delay bonus.

For 2012, the increase for each month after 65 that a person delays applying for CPP goes to 0.64 per cent – or a maximum increase of 38.4 per cent for those who start receiving a pension at age 70. By 2013, the maximum bonus moves to 42 per cent.

These changes won't affect people who are already receiving CPP benefits. They are being made, according to Service Canada, to restore these adjustments to "actuarially fair levels," so there are "no unfair advantages or disadvantages to early or late take-up of CPP retirement benefits."


Drop-out years increase

Canadians currently don't need to contribute to the CPP every year from age 18 to age 65 to get a full CPP retirement pension. When someone's average earnings over their contributory period are calculated, 15 per cent of their lowest earning years are automatically ignored when the calculation is made. For someone who takes their CPP retirement pension at age 65, that means seven years of low or zero earnings are dropped from the equation.

But starting in 2012, that "general drop-out provision," as it's called, goes up to 16 per cent.
For someone eligible for CPP benefits in 2012, that will allow up to 7.5 years of the lowest earnings to be excluded from the calculations – boosting the retirement benefit paid.

In 2014, the percentage will rise again to 17 per cent, which will allow up to eight years of low earnings to be dropped.

These changes can really benefit people who entered the workforce late, who were unemployed for a long time, or took time off to go back to school.

One point to note is that there are separate drop-out provisions specifically for time spent out of the workforce because of disability or to have children.


'Work cessation test' dropped


CPP rules used to require that someone stop or drastically reduce the amount they earned during the two consecutive months before they began to receive a CPP retirement pension.

This was, for many Canadians, an annoying and costly requirement – especially since so many people now ease into retirement instead of stopping work completely.

Now, that rule is history. Beginning in 2012, the "work cessation test" has been eliminated.


Post-retirement benefits

There's another rule change that's important for semi-retirees to be aware of. Before 2012, if someone started receiving a CPP retirement pension early – say, at age 62 – they didn't have to make any CPP contributions if they decided to collect payments but also keep working after age 62.

Starting this year, if you are under age 65 and continue to work while also drawing a retirement pension, you and your employer must make CPP contributions.

The good news for employees is that these extra contributions will be credited to what's called a Post-Retirement Benefit (PRB), which will result in a higher CPP retirement pension in the year after you make contributions to your PRB. This measure is a nod to the reality that many "retired" Canadians are still working.

Canadians who continue working after age 65 and are receiving a retirement benefit will have the choice of whether or not they want to make CPP contributions. If they choose to make them, their employer must kick in their share too. Those additional contributions will go towards higher benefits beginning the year after the PRB contributions.


Premiums and benefits rise


CPP benefits are always adjusted to reflect the rising cost of living. For 2012, the increase in benefits is 2.8 per cent. That will bring the maximum monthly CPP retirement pension to $986.67.

Contribution rates are unchanged. But since the yearly earnings maximum that the rate applies to is going up, the maximum annual contribution will rise by about $89 in 2012 to $2,306.70 for both employees and employers.

6 big Canada Pension Plan changes coming in 2012 - Business - CBC News
 
mentalfloss
#2
Burden of fixing pension system not shared equally
While 67 may be the new 65, that isn't true for everyone

I hope you like your job. The rumblings out of Ottawa on Monday point to a future in which you may need to keep it a couple of years longer than you had planned.

It's not a future, however, that will be universally shared. Many if not most of the members of Parliament who will be asked to approve the new pension rules that are expected later this year will not be hurt by them at all.

That's because the cure that's being contemplated to address what is essentially a problem of too many people growing old at the same time and a falling birthrate will be applied primarily to middle-income Canadians who don't have the kind of hefty workplace pension plans that MPs enjoy.

While still holding back on the all-important details, Conservative House Leader Peter Van Loan confirmed to reporters in Ottawa on Monday that the government is going to make changes to the public pension system in the current session of Parliament.

The OAS is the component of the public pension system that is most universally available. It is also the most expensive benefit that is entirely funded by taxpayers. People who are getting OAS now are being supported by people who are still working, in addition to the taxes that retirees also pay. The issue in the future is that as the baby-boomer bulge moves through retirement, there will be fewer people still working to support them.

The chief actuary of the pension system reports that the ratio of people aged 20-24 to those over 65 is expected to fall from about 4.4 people of working age for every retiree in 2010 to 2.2 in 2050.

Without any changes, the cost of the Old Age Security system, which also includes the Guaranteed Income Supplement, is expected to increase from 2.3 per cent of GDP in 2010 to 3.1 per cent in 2030 before declining to 2.6 per cent in 2050.

That's a substantial percentage increase, but taken over several decades it hardly seems ruinous, especially when you consider that by the time 2050 rolls around, the portion of the economy used to fund the public pension system will be lower than it was at its previous peak in the early 1990s.


Most Canadians who retire qualify for the OAS. The only exceptions are those who haven't lived in the country long enough. However, it is clawed back through income tax once a recipient's income reaches a certain threshold.

Any income other than the OAS very quickly erodes the GIS, which is all gone for a single person at about $16,500. The OAS starts being clawed back at about $69,500 and people who have an income greater than about $110,000 lose it all.

So if you earn more than that, it doesn't matter whether the age threshold for receiving the OAS is set back a couple of years; you aren't going to get it anyway. What would matter to you if you were in that bracket, as many retiring MPs will be because of their large pensions, is if the government were to raise income taxes to pay for the increased cost of providing a more comfortable requirement for lower and middle-income seniors.

In other words, most Canadians will have to work longer so that the wealthiest don't have to pay more taxes.


There are other ways to cap the cost of the pension plan without necessarily increasing the qualifying age. One would be to lower the threshold at which the OAS is taxed back, to move down the income ladder the point at which it is no longer a benefit.

Van Loan also said Monday that MPs will be taking another look at their own highly controversial pension plan. With public pensions being squeezed, that step seems unavoidable. Otherwise MPs may find them-selves fitted up for the early retirement plan that angry voters implement in the polling booth.

Burden of fixing pension system not shared equally (external - login to view)
 
Durry
#3
It's the GIS portion of OAS that is the biggest contributor to the costs.
That's because many immigrants who come here as older immigrants, like under the family unification program or as refugees, get OAS after being here for 5 yrs.
But OAS is proportional to the length of residence in Canada, BUT, GIS is not, as long as you get OAS (an portion of it) you are entitled to the FULL benefits of GIS!!

It's a rip of for those Canadians who have been here 40 yrs or more. BUT, it's a wind fall for recently arrived elderly immigrants..
 
mentalfloss
#4
Quote: Originally Posted by DurryView Post

It's the GIS portion of OAS that is the biggest contributor to the costs.
That's because many immigrants who come here as older immigrants, like under the family unification program or as refugees, get OAS after being here for 5 yrs.
But OAS is proportional to the length of residence in Canada, BUT, GIS is not, as long as you get OAS (an portion of it) you are entitled to the FULL benefits of GIS!!

It's actually proportional to the level of income which is why low-wage immigrants may get more.

It makes sense since we want to keep a nice buffer for those people who can't get higher paying jobs.
 
Durry
#5
Quote: Originally Posted by mentalflossView Post

It's actually proportional to the level of income which is why low-wage immigrants may get more.
bs.

Yes, but it's proportional to both, income level and length of citizenship.

quote from above;
"Most Canadians who retire qualify for the OAS. The only exceptions are those who haven't lived in the country long enough"
 
mentalfloss
#6
Quote: Originally Posted by DurryView Post

Yes, but it's proportional to both, income level and length of citizenship.

You could say that about anything. Of course you have to have some level of residency to qualify, but the primary motivator for this benefit is income.
 
Durry
#7
Clarification;
OAS proportional to the length of time you have had citizenship and the length of time you have resideded in Canada.
But it is clawed back , proportionally , if your income exceeds $xxxxx
 
mentalfloss
#8
Quote: Originally Posted by DurryView Post

But it is clawed back , proportionally , if your income exceeds $xxxxx

Right and as the article states, people who have an income greater than about $110,000 lose it all. So even if you were in the country for 2 years or 20 years, for example, you would not be entitled to this benefit if your income was over $110,000.
 
Durry
#9
Quote: Originally Posted by mentalflossView Post

You could say that about anything.

No, I don't think so.
An immigrant is entitled to 100% of our generous health care and Long Term care facilities the day he gets his citizenship, even if he came here @ 65 yrs of age.

Do you know that Toronto had 65% of its seniors are immigrants... Guess who's paying the tab here??

Quote: Originally Posted by mentalflossView Post

Right and as the article states, people who have an income greater than about $110,000 lose it all. So even if you were in the country for 2 years or 20 years, for example, you would not be entitled to this benefit if your income was over $110,000.

That's not the point. Few over 65 and retired make over $100k. Let's deal with the norm if your talking about savings, not the exception...shhhhheeee!!
 
mentalfloss
#10
Quote: Originally Posted by DurryView Post

That's not the point. Few over 65 and retired make over $100k. Let's deal with the norm if your talking about savings, not the exception...shhhhheeee!!

Hey, bro.

I actually agree with you, and as you've shown, the primary factor is income.

Anyway, the point is, the only people who benefit from the age change are the wealthiest. Once again, the 99% get screwed for the 1%.
 
Durry
#11
Quote: Originally Posted by mentalflossView Post

Hey, bro.
, the primary factor is income.

No!!!!ssheeee, the primary factor is GIS and senior immigrants access to it,,,sssshhhheeeee!!!!

Quote: Originally Posted by mentalflossView Post

Anyway, the point is, the only people who benefit from the age change are the wealthiest. Once again, the 99% get screwed for the 1%.

Ummmm, you totally lost me on this one,,,,know anything about economics???
 
mentalfloss
#12
Quote: Originally Posted by DurryView Post

Ummmm, you totally lost me on this one,,,,know anything about economics???

Read the article.

Any income other than the OAS very quickly erodes the GIS, which is all gone for a single person at about $16,500. The OAS starts being clawed back at about $69,500 and people who have an income greater than about $110,000 lose it all.

So if you earn more than that, it doesn't matter whether the age threshold for receiving the OAS is set back a couple of years; you aren't going to get it anyway. What would matter to you if you were in that bracket, as many retiring MPs will be because of their large pensions, is if the government were to raise income taxes to pay for the increased cost of providing a more comfortable requirement for lower and middle-income seniors.

In other words, most Canadians will have to work longer so that the wealthiest don't have to pay more taxes.


 
Durry
#13
Lost me, don't see the point..
 
TenPenny
+1
#14
Quote: Originally Posted by DurryView Post

An immigrant is entitled to 100% of our generous health care and Long Term care facilities the day he gets his citizenship, even if he came here @ 65 yrs of age.


Really? Most provinces have a requirement for residency for x months before qualifying.
 
mentalfloss
#15
Quote: Originally Posted by TenPennyView Post

Really? Most provinces have a requirement for residency for x months before qualifying.

What's funnier is that he admitted that it was a 5 year term just two posts prior.

Edit.. sorry, this is about healthcare now..

The residency requirement is 2 years in Canada within a 5 year term.
 
Durry
#16
Quote: Originally Posted by TenPennyView Post

Really? Most provinces have a requirement for residency for x months before qualifying.

X months???? Wow,,,that should be a tremendous help !!!!
 
mentalfloss
#17
Quote: Originally Posted by DurryView Post

X months???? Wow,,,that should be a tremendous help !!!!

You need to be at least a permanent resident in order to be eligible for healthcare.

To keep your status as a permanent resident, you must live in Canada for at least two years within a five-year period. (external - login to view)
 
Durry
#18
Quote: Originally Posted by mentalflossView Post

You need to be at least a permanent resident in order to be eligible for healthcare.

To keep your status as a permanent resident, you must live in Canada for at least two years within a five-year period. (external - login to view)

Yep, pretty generous. No max age limitation. Come here live a few years, go back to your mother country a few years, but get all of Canada's health care and long term care facitilites,,,, once you got permanent residence, only come here to satisfy your residency requirements and when you get sick or old. In the meantime keep your money in your mother country, pay little if any Canadain tax, and live a good life...

Too bad I was born here, I am missing out on such a great scam !!!
 
mentalfloss
#19
Quote: Originally Posted by DurryView Post

Yep, pretty generous. No max age limitation. Come here live a few years, go back to your mother country a few years, but get all of Canada's health care and long term care facitilites,,,, once you got permanent residence, only come here to satisfy your residency requirements and when you get sick or old. In the meantime keep your money in your mother country, pay little if any Canadain tax, and live a good life...

Too bad I was born here, I am missing out on such a great scam !!!

The problem is with how they are screened during immigration, not their citizenship status.

Geez.
 
TenPenny
#20
Quote: Originally Posted by DurryView Post

X months???? Wow,,,that should be a tremendous help !!!!

When you decide to have any fuking knowledge to back up your assinine claims, feel free to provide them.

Until then, please carry on displaying your incredible talents.
 
Durry
#21
Quote: Originally Posted by mentalflossView Post

The problem is with how they are screened during immigration, not their citizenship status.

Geez.

Like "what" screening??? Are you going to discriminate against the older people because they are old,,,,,,aaahhhhh, not good !!!!
 
mentalfloss
#22
Quote: Originally Posted by DurryView Post

Like "what" screening??? Are you going to discriminate against the older people because they are old,,,,,,aaahhhhh, not good !!!!

C'mon Durry.

If someone with a terminal illness is clearly coming here to take advantage of our healthcare system that's a pretty big red flag.
 
petros
+2
#23  Top Rated Post
Yeah. It's cheaper to let them die.
 
Durry
#24
Quote: Originally Posted by mentalflossView Post

C'mon Durry.

If someone with a terminal illness is clearly coming here to take advantage of our healthcare system that's a pretty big red flag.

Terminal illness is just one issue, how about all the other ones that keep a passport of convince only to use it when they need it.

During the Lebanon crises, how many Lebanonese did they find had passports of convience,,millions!!!

Convenience ,,,,shhheeee, auto spell ck!!

Quote: Originally Posted by petrosView Post

Yeah. It's cheaper to let them die.

Absolutely !!
 
petros
+1
#25
My retirement plan is to work at Tim Horton's in Manila.
 
mentalfloss
#26
Research belies PM’s warning about OAS

Expert advice commissioned by the federal government contradicts Stephen Harper’s warnings that Canada can’t afford the looming bill for Old Age Security payments.

The Prime Minister and his ministers forcefully defended their surprise plans to review OAS on Monday, as the year’s first sitting of Parliament exploded with accusations from the opposition that the Conservatives misled Canadians during the 2011 federal election.

Mr. Harper held his ground, insisting Canada’s aging population means Ottawa must change the rules for future seniors to ensure it has the long-term cash to cut a growing number of monthly cheques. The Prime Minister’s decision to signal his planned pension changes while in Europe last week was partly to remind Canadians of the deep problems European governments are facing because of social programs they can’t afford.

But research prepared at Ottawa’s request argues Canada’s pension system is in far better shape than the Europeans’, and there’s no need to raise the retirement age. Edward Whitehouse – who researches pension policy on behalf of the Organization for Economic Co-operation and Development and the World Bank – was asked by Ottawa to study and report (external - login to view) on how Canada stacks up internationally when it comes to pensions.

His conclusion: “The analysis suggests that Canada does not face major challenges of financial sustainability with its public pension schemes,” and “there is no pressing financial or fiscal need to increase pension ages in the foreseeable future.”

While other OECD countries face big pension problems, the report predicts Canada will do just fine as the baby boomers retire. That’s because, as Canada heads into the boomer crunch, it spends far less than the OECD average on public pensions. Further, Canada’s relatively high levels of immigration will partially offset the distortions of an aging population, and Canadians tend to save more independently through RRSPs and workplace pensions than Europeans.

The report is one of six that fed into a larger summary paper written by the University of Calgary’s Jack Mintz that reported to federal and provincial finance ministers at a December, 2009, meeting. While this supporting research was overshadowed at the time, it stands in sharp contrast to forceful warnings now coming from the Conservative government.

Mr. Harper repeated his view Monday that Canada’s aging population threatens social programs. “Everybody understands that there are demographic realities that do threaten the viability of these programs over the longer term, and we will make sure that these programs are funded and viable for the future generations that will need them,” he told the House of Commons.

A spokesperson for Human Resources Minister Diane Finley responded to questions about Mr. Whitehouse’s report by pointing to the latest actuary report on the OAS, which stated the cost of the program will nearly triple by 2030.

Ministers refused to provide details of the proposed changes and would only say that current recipients of OAS will not be affected.

The government’s claims leave experts baffled. Thomas Klassen, a York University political science professor who co-authored a 2010 report on Canada’s pension system, said his own research concluded that the OAS program is sustainable.

“I haven’t heard any academic argue that there’s a crisis with OAS, which is why I was surprised a few days ago when the Prime Minister seemed to say there was a crisis,” he said. “Because I don’t know where that came from.”

Prof. Klassen said he suspects the federal government has concluded that reducing OAS costs is an easy way to save money over the long term because it can be done unilaterally without negotiating with the provinces or public-sector unions. “It’s okay to look at Old Age Security pension payments,” he said, “but I think there’s got to be a lot more evidence that there’s a problem, and I don’t see that evidence.”

Kevin Milligan, a University of British Columbia economics professor who co-authored another of the supporting research papers prepared for Ottawa, is also of the view that there is no OAS crisis. He says the government’s use of statistics showing the cost of OAS will climb from $36.5-billion in 2010 to $108-billion in 2030 is not very meaningful because of the impact of inflation. He notes the rise is less alarming when measured as a percentage of economic growth.

“As an economist, I would never characterize things in terms of nominal dollars in the future because it’s hard to put those in context,” he said. “I don’t know what we’ll be paying for a litre of milk then.”

When the House of Commons finance committee studied pension issues in 2010, Mr. Whitehouse appeared as a witness and discussed his research.

“Canada's pension system is looking good on the measures of adequacy. It is also looking good on measures of financial sustainability,” Mr. Whitehouse told MPs. “Canada does not face the same financial sustainability problems as many other OECD member countries do, particularly in Europe and among the East Asian countries, Japan and Korea, whose populations are aging most rapidly.”

At the end of its study, the committee’s final report did not recommend raising the age of eligibility for OAS or reducing benefits. However, a minority report by the committee’s Conservative MPs said payment rates for the OAS and the Guaranteed Income Supplement for seniors should be reviewed.

Research belies PM's warning about OAS - The Globe and Mail

Citing ‘enthusiastic support,’ Tories move to cap pension bill debate

The Conservative government moved Tuesday to limit debate on a pension reform bill that will create new Pooled Retirement Pension Plans.

Government House Leader Peter Van Loan argued the move to invoke a process called “time allocation” was justified because the Conservatives won the last election by campaigning on the need for PRPPs.

He said there is “enthusiastic support” for this new pension option, yet the opposition is focused on delay tactics.

“Why are they so determined to keep Canadians from having that option?” he argued in a special half-hour debate triggered by the motion. “It [time allocation] allows for debate to continue but it ensures we will actually make decisions.”

Mr. Van Loan made the accusations of delay in spite of the fact that the government only opened debate on the bill for the first time Monday.

The opposition NDP and Liberals attacked the move as “a disgrace,” arguing that it marks the 13th time the majority Conservative government has limited debate through time allocation or closure motions.

With the bells calling MPs to vote on the motion, NDP MP Chris Charlton held a hurried news conference to announce that – as opposition whip – she would be refusing to perform her ceremonial duties of walking down the aisle with Mr. Van Loan to kick off the vote as a form of protest.

She said it was “absolutely ridiculous” for the government to move time allocation after one day of debate. Ms. Charlton claimed the move is connected to controversy over Mr. Harper’s speech last week in which he signalled changes were coming to Old Age Security.

“The government has failed Canadian seniors and is now talking about gutting OAS,” she said.

Liberal MP Judy Sgro argued that opposition MPs were also elected and have a right to debate pension reform.

“We were elected and our job is democracy,” she said. “It’s a slap in the face to every Canadian.”

The government motion would limit second reading debate to two more days before a vote would take place to send the bill to committee. It would then be debated at committee, and then again in the House of Commons at report stage and third reading. If passed by the House, the legislation would be debated again in the Senate.

The debate over PRPPs comes as pension reform has suddenly jumped to the top of the political agenda in Ottawa. Prime Minister Stephen Harper surprised many last week by signalling changes are needed to Old Age Security to ensure that it is sustainable.

The federal government has been studying all aspects of Canada’s pension and retirement savings options for several years now. Some of that research noted that many middle-income Canadians are not saving enough to maintain their current standard of living in retirement.

The government argues that PRPPs will help address this by targeting employees of small businesses that do not currently offer workplace pensions. These small businesses would auto-enroll new hires into the system, though workers would have the right to opt out. Federal rules would not force employers to contribute to their workforce PRPPs, though provinces could make such contributions mandatory.

The contributions to PRPPs would be managed by the private sector at “low cost,” but the legislation does not define what low cost will mean in practice.

Citing "enthusiastic support," Tories move to cap pension bill debate - The Globe and Mail
Last edited by mentalfloss; Jan 31st, 2012 at 12:44 PM..
 
Adrian8100
#27
great sharing...
Thanks for sharing this...this is a very useful information that will be referenced long into the future.
 

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